How to Avoid Bankruptcy

Bankruptcy is not the end of the world, but it is something you should avoid if at all possible. We no longer put people in debtor’s prison for ending up bankrupt, but there are still consequences for ending up in this position. The good news is that it is often possible to avoid bankruptcy. These days there are plenty of other options and you will want to consider these before you choose more extreme solutions. Of course, in a lot of situations you will have no choice but to be declared bankrupt.

What Does Bankruptcy Means

When we say that somebody is bankrupt it means that they have reached a situation where they can no longer pay their debts.  A person only reaches this position when they have been legally defined that way. The debtor can apply to a court to declare themselves bankrupt or the creditor may do so on their behalf. Once bankruptcy has been declared it is then up to the courts to decide which assets will be given to the creditor. After the person has been declared bankrupt it will not be possible for the creditor to take any further action. They will have to be satisfied with whatever the trustee decides needs to be paid. In most instances the bankruptcy will be discharged within one year.

The Penalties of Bankruptcy

Bankruptcy is best avoided because it does involve a few penalties. These negative consequences will hurt some people more than others. The main penalties include:

• It will be hard to borrow money again in the future. We live in a world where much business is conducted using credit so a poor credit rating can be a big disadvantage. It may mean never being able to get a mortgage for a house or a loan for a car.
• When you go bankrupt it means losing control of your current assets. You could lose everything as the court decides to use these assets to pay back your creditors.
• Going bankrupt means being barred from working in certain profession in the future. You will not be allowed to become a Justice of the Peace or an MP. If you ever wish to start your own business you will need to get permission from the court in order to do so.
• You will need to pay a court fee in order to declare yourself bankrupt.

How to Avoid Bankruptcy

Some of the best options for avoiding bankruptcy include:

• Individual Voluntary Agreement (IVA). This is a repayment agreement that is arranged by your representative with your creditors. You will offer the best proposal possible and they may accept it if they believe it is the best deal available. An IVA usually means paying a lot less than what you owe.
• Debt Management Plan. This is an informal arrangement between you and the banks to pay back the money you owe.
• Consolidation loan. This means borrowing money to clear all your debts so that you then only have one creditor to worry about.